CDW CEO: On growing services, cloud applications and reshaping IT

CDW CEO Thomas Richards talks about how the services company can help customers with mobility issues and the BYOD challenge

In this installment of the IDG Enterprise CEO Interview Series, CDW CEO Thomas Richards spoke with Chief Content Officer John Gallant about how CDW is expanding its strategic services offering, and how mobility and consumerization are expanding growth opportunities for the company. He also talked about the rollout of Windows 8 and the Surface tablet, and why CDW is in an ideal position to capitalize on the big changes reshaping IT.

Chances are you're already doing business with CDW. After all, the Vernon Hills, Ill.-based provider of tech products and services boasts more than a quarter-million customers to whom it ships more than 2,200 custom-configured systems every day (from a portfolio of more than 100,000 partner products). But CEO Thomas Richards wants you to think of CDW for more than just those new servers or storage devices. Richards has led a strategic push that has CDW now helping IT shops build private clouds, reselling cloud applications from Microsoft and, among others, and providing its own managed and cloud services with partners like Cisco. In this installment of the IDG Enterprise CEO Interview Series, Richards spoke with Chief Content Officer John Gallant about how CDW is expanding its strategic services offering, and how mobility and consumerization are expanding growth opportunities for the company. He also talked about the rollout of Windows 8 and the Surface tablet, and why CDW is in an ideal position to capitalize on the big changes reshaping IT.

Tom, help our readers understand the mission of CDW, as well as some of the key areas of focus for the company today.

Our mission is to be the leading IT solutions provider in the markets we have chosen to serve. We state it that way because we're not going to try to be all things to all people. There are certain markets where we think we have a great value prop for customers and create great value, and there are other markets that are not in our sweet spot. We've set what we believe is an ambitious goal. That was done a couple years ago as part of a strategy process shortly after I got to CDW. We built that as the mission and then went through a pretty rigorous process of looking at what we do well, what markets we serve and what parts of the IT marketplace had some openings or opportunities where CDW could expand our capabilities.

We think that we bring value to two important groups of people in the IT world. One is customers and the other is our partners. We represent over 1,000 partners and 100,000 products. We have a technical sales organization of over 600, we've got a service delivery organization of over 600, and we've got a selling organization that's close to 2,500. We believe we've got the right combination of skills, resources, access, scale and scope to help both of our parties. The value proposition for our partners is that we provide a very efficient and effective, value-building and brand-building route to market. For customers, we bring choice to the marketplace. We bring the benefit of size, scale and scope. And we have now expanded our solution set to include a pretty strong technical and a service organization to enable us to help customers in a number of different parts of the IT world.

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Your recent financial results are quite strong. What's driving your growth?

We're getting growth in a number of different areas. We continue to grow in several verticals, like healthcare and federal, which is one part of our core strategy. We have had continuous growth here for a couple of years. Another way we're growing the business is expanding the products, services and solutions we offer customers. Up until four or five years ago, you probably would have thought more about us just in the client end of the world. But we began to invest in resources, skills and capabilities in the data center. If you look at our last earnings call, you saw that network/communications was a high area of growth for us. Solutions areas like virtualization, areas like data center consolidation, all of those have become growth areas. Another recent investment area for us was expanding our service capability. In our last earnings announcement, that particular part of the business grew about 17%.

I want to drill down into some specific technology areas that are of significant interest to our audiences. Let's start with cloud, because I know you've had a number of announcements around that. As companies shift more functions over to cloud or service providers, is that a threat to CDW's business model?

It's actually an enhancement. Let's take the layup first, private cloud. We help people build out data centers, have helped people build out data centers, and so as they're building out a private cloud solution inside of their business, that is not too far afield from what we've been doing for the last four or five years. You're utilizing some of the technologies that facilitate a cloud-like solution, be it virtualization, just as one example, or shared assets. For us, private cloud is more of the same. If you look at areas of our business that are growing, they tend to be the kind of areas that people would invest in if they were expanding their private clouds.

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I want to drill down even a little bit deeper here. Let's talk specifically about what you offer and how you're helping people build private cloud, and then I want to talk about CDW as a cloud provider in and of itself. But let's talk about that set of capabilities around private cloud.

Let's say I started by trying to share resources in a data center. Now, I'm going to virtualize in greater economies and I'm going to think about how I build an infrastructure that permits me to share that resource with my constituents. We have technical people that can go in and help you think about it, share experiences where we've helped other people both design it and architect it. Think about all the issues that go with it, be it security, be it utilization, technical obsolescence and management. We have the people to actually sit with whomever it is in the IT organization to help craft the strategy and the required components. Let's say you're going to go with an integrated infrastructure and you're thinking about something like FlexPod or [VCE] Vblock or HP's Blade System, then we would help you procure it once we've helped you design it and then help you implement it.

Talk about CDW as a cloud provider. I notice that you've had a number of partnerships on this front. What kinds of services and capabilities will you offer yourself, will you host? And talk a little bit about the companies that you're partnering on this.

I think one thing that wasn't well known about CDW was that we had a hosting and managed services business even before cloud was cloud, if I can say it that way. When you do that, you have a lot of the components that enable you to offer cloud-like services, infrastructure as a service. Cloud sits in three buckets. The first bucket is where we will do what we have always done, which is to take other people's cloud-based solutions, whether that's BPOS from Microsoft or our recently announced relationship with, where we'll continue to be a reseller of those capabilities. That's a great business for us, but that then takes you into a second bucket, which I think is just as exciting. And that, depending on the size of the organization and their level of technical resources, is when you're beginning to implement cloud-like solutions and you're going to integrate them into an existing IT infrastructure. That requires a level of technical competence to help you think about how to interface these two different IT sourcing models and integrate the applications. Those technical resources can help customers build that roadmap and think through that. More and more we find we get engaged in that area. That's increasingly appealing to not only customers, but to us.

The third bucket, which is where I think you were trying to get me, is us becoming a cloud service provider where we actually take on the role of delivering the service. We have several of our partners, quite honestly, who have been pushing us to do this. We've just recently announced a hosted VoIP solution, if you will, with Cisco, where we're doing a hosted collaboration service.

Can you talk further about the Cisco deal around collaboration? You are actually hosting their collaboration offerings, right?

Yes, we are. We announced it sometime during the second quarter, and I'm not doing it justice by just calling it hosted VoIP. It's taking their collaboration capability and we're actually offering it out of our data center, where we're the provider of the service and customers are going to buy it the way you would buy hosted VoIP. We're going to manage the asset, we're going to manage the technical obsolescence, we're going to manage the provisioning process, and for all intents and purposes you're going to buy the hosted product on a pay-as-you-go. I'm not doing justice to what it all entails, but I wanted to at least give you the picture.

Is that targeted at a particular market segment? Is that more an SMB type offering or is that even appealing to large enterprise?

It depends on how you define SMB. That's been one of my interesting learnings here at CDW: That definition jumps all over the map. For us, it's somewhere between 5,000 workers at the high end all the way down to 20. This [collaboration offering] is not something that I'd be bringing in, at this point in our lifecycle, to a Fortune 100 company saying, "Let us take over your collaboration capability." That's not yet our target market.

You mentioned the partnership. I'm a little unclear on that kind of reseller arrangement. What kind of a value-add do you provide to a customer of someone else's software-as-a-service offering?

If you're a customer today and we're deeply involved in helping you architect, manage, procure your IT infrastructure, and you have made a decision that you'd like to go to as part of that, CDW can help you procure that capability and help you integrate it into your infrastructure. That makes absolute sense to me. Here's what I think appeals to CDW has over 260,000 customers that we've got a long and pretty incredible relationship with, so there's a route to market and relationships, and that's probably the most important thing that will enable us to deliver their product.

Are there other SaaS companies like that you've have similar partnerships with?

You would argue [Microsoft] Office 365 has got the same kind of play and we've had very good success in selling Office 365. If you remember that first bucket I was alluding to, which is our historical resell model, we are aggressively going out and looking for people to complement the others we've signed up in that area. We're being thoughtful about who we partner with so that we don't get out ahead of our skis and get in a situation where we're over-promising and under-delivering.

And while we're on this SaaS theme, can you talk about how you're helping your big partner Microsoft make the customer transition to the cloud?

I've clearly seen an evolution, even in the short period of time I've been at CDW, relative to the importance of having their product suite both be premise based and cloud based, if I can say it that simplistically. I don't want to make it sound like CDW is there opening up people's eyes. I think Microsoft clearly understood the potential for them and so it's more about [us working] in collaboration with them. We talked earlier about our investment in those technical resources. One of the ways they're a differentiator is helping customers think about whether they want to have some Microsoft products on-prem and other Microsoft products that are in the cloud. How do I think about building that IT infrastructure and taking advantage of both of those capabilities? You have to have invested in the right kind of technical resources to enable that discussion to happen with a customer.

Can you talk about another company that's made some significant strategic announcements about cloud: HP. Do you have specific plans around helping HP advance its cloud strategy?

Because HP is such an important partner, like Microsoft and Cisco and a few others we've mentioned so far, a lot of what they're doing with their CloudSystem Matrix is part of our normal rhythm, if you will. I would say more of our work with HP has been in the private cloud, building out private cloud capabilities and data centers. That really is in our historic sweet spot.

Is there any more detail you can provide about the HP cloud partnership?

If you've followed their BladeSystem Matrix and the cloud version of product capabilities, that's what we do all the time -- walk in and help build those private data centers. I know it doesn't sound very revolutionary, but it is a large part of the historical relationship between HP and CDW. Before it used to be that we'd go in and upgrade servers. Now the discussion becomes, "Can you come in and help me build some kind of cloud matrix in my business that gives me the flexibility to have a private cloud?"

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